FTC sues 3 largest PBMs for allegedly inflating insulin prices, shifting costs to vulnerable patients

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The nation’s three largest pharmacy benefit managers (PBMs) inflated insulin drug prices, using anticompetitive business practices to shift costs to vulnerable patients, according to the Federal Trade Commission (FTC).

The Commission voted to file an administrative complaint against Caremark Rx, Express Scripts (ESI), and Optum Rx and their affiliated group purchasing organizations for using unfair rebating practices to manipulate insulin prices.

“Millions of Americans with diabetes need insulin to survive, yet for many of these vulnerable patients, their insulin drug costs have skyrocketed over the past decade thanks in part to powerful PBMs and their greed,” FTC Competition Bureau Deputy Director Rahul Rao said in a news release. “Caremark, ESI, and Optum — as medication gatekeepers — have extracted millions of dollars off the backs of patients who need life-saving medications.

“The FTC’s administrative action seeks to put an end to the Big Three PBMs’ exploitative conduct and marks an important step in fixing a broken system — a fix that could ripple beyond the insulin market and restore healthy competition to drive down drug prices for consumers,” Rao said.

The Big Three and ‘perverse’ pricing

The PBMs involved are the Big Three, administering about 80% of all prescriptions in the United States, according to FTC. They work with their respective GPOs, known as Zinc Health Services, Ascent Health Services, and Emisar Pharma Services.

The businesses “have abused their economic power by rigging pharmaceutical supply chain competition in their favor, forcing patients to pay more for life-saving medication,” the FTC announcement said.

The regulators claimed the PBMs created a perverse drug rebate system that prioritized high rebates from drug makers, which artificially inflated insulin list prices. Even when lower-priced versions became available, the PBMs systematically excluded them in favor of drugs with higher list prices and rebates, the FTC announcement said.

“These strategies have allowed the PBMs and GPOs to line their pockets while certain patients are forced to pay higher out-of-pocket costs for insulin medication,” the FTC announcement said.

Historic perspective

The FTC compared prices from a generation ago with more recent market conditions.

In 1999, the average list price was $21 for Humalog, the brand name insulin made by Eli Lilly and Co. By 2017, that rose to more than $274, a price increase of more than 1,200%, which the FTC called “staggering.” By 2019, 25% of diabetic patients were unable to afford their medications, according to FTC.

Fair competition?

The situation grew worse starting in 2012, when PBMs created exclusionary drug formularies. Using their size, PBMs began threatening to exclude some drugs from formularies, trading greater rebates from drug makers for more favorable formulary placement. In turn, drug makers needed the favorable formulary placement to access patients with commercial health insurance.

Instead of competing for business, the Big Three PBMs created an upside-down market. Manufacturers pushed up list prices to offer larger rebates and fees needed to get on drug formularies, and insulin prices increased. In one example, price rose from $122.59 in 2012 to $289.36 in 2018 for Novo Nordisk’s Novolog U-100.

Then, patients with deductibles and coinsurance had to pay unrebated higher list prices for insulin drugs, seeing no benefits or discounts at the point of sale, from the rebates. At the same time, the PBMs netted hundreds of millions of dollars a year in rebates and fees, then use the rebates to attract payers such as employers, labor unions and health insurance companies.

Blame to go around

The FTC announcement called out pharmaceutical makers Eli Lilly, Novo Nordisk and Sanofi and said Competition Bureau staff remain deeply troubled by the role of drug manufacturers in setting prices. “Indeed, all drug manufacturers should be on notice that their participation in the type of conduct challenged here raises serious concerns, and that the Bureau of Competition may recommend suing drug manufacturers in any future enforcement actions,” the FTC announcement said.

PBM rips FTC

The legal case was the second in four days involving the pharmaceutical industry and the federal regulators. Earlier this week, Express Scripts by Evernorth, which is a subsidiary of The Cigna Group, filed a lawsuit demanding the FTC retract its scathing report, published earlier this year and alleging anticompetitive behavior by PBMs. That case is pending in federal court in Missouri.

Procedural issues

The Commission vote was 3-0-2 to file the FTC complaint. FTC Chair Lina Khan and Commissioners Rebecca Kelly Slaughter and Alvaro Bedoya voted in favor; Commissioners Melissa Holyoak and Andrew N. Ferguson were recused.

FTC said an administrative complaint is filed when the Commissioners have reason to believe the law has been broken and it appears a proceeding is in the public interest. The proceeding includes a trial of the allegations before an administrative law judge.

Rao also published a longer statement about the case.